PROFESSIONAL NEGLIGENCE

Transcription

1 PROFESSIONAL NEGLIGENCE This article, written by Sophie Taylor, first featured in the Solicitors Journal on 8 December The current economic downturn has led to a rise in the number of claims pursued against the legal profession, with more claims likely to be brought over the coming years as the UK emerges from the recession. This trend presents a suitable opportunity to re-assess the duties which lawyers owe to their clients as well as the circumstances in which those duties might be modified. The relevant standard of care The test applied to solicitors in professional negligence claims is that expressed by Oliver J in Midland Bank Trust Co. Ltd v- Hett, Stubs & Kemp (A Firm) [ ] P.N.L.R. 95, namely what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession. The same standard of care applies to barristers, as reaffirmed by the recent case of Pritchard Joyce & Hinds (A Firm) v- Batcup [2009] P.N.L.R. 28 in which Sedley LJ commented: The law does not demand either omniscience or infallibility in lawyers any more than it does in doctors or architects. The law s standard of reasonable competence means not only that there will be errors which are not compensable but that legal advisers are not expected to divine every claim that a client may theoretically have. Although the applicable standard of care remains somewhat static, the extent of a lawyer s duties will vary according to the scope of his retainer. As Oliver J stated in Midland Bank, there is no such thing as a general retainer the extent of [a lawyer s] duties depends upon the terms and limits of that retainer and any duty of care implied must be related to what he is instructed to do. There is a plethora of case law dealing with this very point.

2 Scope of duties owed In Smith v McInnis (1979) 91 D.L.R. (3d) 190, specialist insurance counsel was instructed by solicitors to advise on the preparation of proofs of loss in relation to claims being pursued under insurance policies. The instructing solicitors missed the relevant limitation period and, in the ensuing professional negligence proceedings, sought a contribution from counsel. The Supreme Court of Canada held that counsel had only been retained to advise on how to organise the insurance claims (in terms of the preparation of the proofs of loss) and was not required to give advice on the relevant limitation period. This authority sits somewhat uneasily with recent English case law in which the Courts have been at pains to emphasise that lawyers duties often extend beyond the strict scope of their retainer. In Credit Lyonnais SA v Russell Jones & Walker [2003] P.N.L.R. 2, solicitors were alleged to have breached the duty of care owed to their client by failing to warn it that a payment required by a break clause in a lease was a condition precedent and time critical. Russell Jones & Walker ( RJ&W ) argued that the scope of their instructions was so restricted as to exclude any duty to investigate the terms of the lease. They relied upon Clark Boyce v Mouat [1994] 1 A.C. 428 in which the Privy Council held that where a client is in full command of his faculties and apparently aware of what he is doing the solicitor is under no duty whether before or after accepting instructions to go beyond those instructions by proffering unsought advice on the wisdom of the transaction. Credit Lyonnais relied on the comments of Bingham LJ in Mortgage Express Limited v Bowerman and Partners (A Firm) (No.2) [1996] P.N.L.R.62 that a client cannot expect a solicitor to undertake work he has not asked him to do and will not wish to pay him for such work But if in the course of doing the work he is instructed to do the solicitor comes into possession of information which is not confidential and which is clearly of potential significance to the client, I think that client would reasonably expect the solicitor to pass it on and feel understandably aggrieved if he did not. Laddie J considered both authorities and held that they were consistent with each other. He stated that a lawyer s duties are defined by the extent of his agreed retainer and he is under no general obligation to expend time and effort on issues outside the retainer. However, if in the course of doing that for which he is retained, he becomes aware of a risk or a potential risk to the client, it is his duty to inform the client. Laddie J found RJW to have been negligent on the basis that the client should have been warned of the risk implicit within the break clause. Laddie J s comments go some way to explaining the circumstances in which a lawyer s duties can extend beyond the strict scope of his retainer. It can be concluded from the above authorities that, although a retainer may be carefully defined and a lawyer under no obligation to spend time on issues outside of that retainer, this does not absolve him of a duty to ensure that any risks he becomes aware of during the course of carrying out his instructions, are brought to the client s attention. 2

3 Characteristics of the client The characteristics of the client may also shape the scope of the duties owed by lawyers, although this is likely to be rare. In Pickersgill v Riley [2004] P.N.L.R. 31 a solicitor was instructed to act for a client in relation to the grant of a lease of business premises in Jersey and the sale of shares. The transaction involved the client taking a guarantee from a limited company, which he later discovered to be a shell company with no assets. Lord Scott of Foscote set out the principles by which a solicitor s duties are determined: the scope of the duty may vary depending on the characteristics of the client, in so far as they are apparent to the solicitor. In Pickersgill, the client was an experienced businessman who had negotiated the share sale himself. Lord Scott made it clear that this did not absolve the solicitor from a duty to point out to his client any legal obscurities of which he might have been unaware, but this did not mean that he was under a duty to advise on the commercial implications and wisdom of the transaction. However, in the same year Clarke v Iliffes Booth Bennett [2004] EWHC 1731 came before the Courts. It was held that a solicitor has a duty to understand the effect of the document being negotiated and may (depending on the circumstances) have a duty to be equipped to correct the client s misunderstanding of an important part of the transaction. He cannot claim to be under no duty to understand commercial terms simply because the client is sophisticated and has been involved in the negotiation himself. The effect of a client s apparent sophistication was considered again in Football League Ltd v Edge Ellison (A Firm) [2007] P.N.L.R. 2, where solicitors were alleged to have been negligent by omitting to obtain Football League s instructions as to whether it wished to ask for guarantees from the parent companies of ONdigital. Rimer J asked is the solicitor supposed to review the whole range of commercial considerations that underlie a particular deal, work out which ones he is concerned the client may not have given sufficient thought to and remind him about them?. His conclusion was no and he also considered that Football League was guilty of contributory negligence because the question of parent company guarantees was primarily a matter for it to consider and assess for itself without any need for advice. In the recent case of Tamlura N.V. v CMS Cameron McKenna [2009] EWHC 538 (Ch), the clients had agreed the principal commercial terms of a transaction. The main principals were experienced men of commerce who had engaged an experienced finance expert to advise and act for them in matters of his commercial expertise. The High Court found that it did not fall to the solicitors to point out to the clients the commercial effects of a particular aspect of the deal. They were entitled to assume that the clients had worked these out for themselves. 3

4 The above cases appear to indicate that the sophistication and knowledge of a client can, in certain circumstances, shape the scope of a lawyer s duties. However, this is only likely to be the case where a solicitor is alleged to have breached his duty in relation to a commercial, rather than a legal, aspect of a transaction. Importance of clear advice Recent case law has considered the extent to which a lawyer is under a duty not just to give correct advice, but also to do so clearly. This arose in Levicom International Holdings BV v Linklaters (A Firm) [2009] EWHC The facts are complex but in summary Linklaters acted for Levicom in respect of its dispute with two Swedish companies regarding alleged breaches of a shareholder agreement. The dispute was eventually settled part way through an arbitration hearing. Levicom alleged that, had Linklaters provided it with proper advice, it would have negotiated an earlier, and more advantageous, settlement rather than embarked on the arbitration proceedings. Mr Justice Andrew Smith emphasised that Linklaters were obliged to obtain a proper standard in forming their views about Levicom s rights, and also to exercise reasonable skill and care to convey their advice to Levicom with proper clarity. He found a letter written by Linklaters was negligent, not because they failed to exercise proper skill, care or competence in reaching the opinions that they were seeking to express in it, but because the letter did not properly convey their advice Levicom were clients who applied their own mind to the advice that they received and made independent decisions and Linklaters did not communicate as effectively as they might the extent to which they disagreed with those views. In Moy v Pettman Smith (A Firm) [2005] P.N.L.R. 24, counsel faced allegations of negligence relating to the advice given to the client regarding settlement at the door of the court. The Defendants had advised her that an earlier payment into court remained open for acceptance until the start of trial. Counsel knew that she faced difficulties obtaining the Judge s leave to adduce key medical evidence, but took the view that there was a better than 50:50 chance of doing so and, on that basis, advised the client that he should press on rather than settling. She also considered that if the application was not successful, the client would have the security of a cause of action against the solicitors for negligence in preparation of the case. However, she did not advise the client of this possibility. During the hearing it became clear that permission for adducing the evidence would not be granted and Counsel advised the client to settle on the best terms he could. Such terms were, of course, by then less advantageous. In a contrast to the Levicom case, Lord Carswell stated that it was not incumbent upon [Counsel] to spell out her reasoning and so she was not in breach of her duty of care to the [client] in the advice she gave. 4

5 Both cases underline the importance of ensuring that advice is conveyed to clients clearly. Even if that advice is deemed to fall within the range of the advice given by a reasonably competent practitioner, it must be conveyed in terms which a client can understand. Sophie Taylor is an associate in the dispute resolution team at Stevens & Bolton LLP. Contact: sophie.taylor@stevens-bolton.co.uk 5